What are the Economic Blocks?

What Does Economic Blocks Mean

We explain what economic blocks are, their objectives, advantages, disadvantages and characteristics. Also, its link with globalization.

What are the economic blocks?

Economic blocs or trade blocs are voluntary groupings of nations , exhibiting some degree of economic integration . Therefore, they seek to mutually benefit from international trade according to common legal regulations.

In other words, they are international trade groups, generally associated with a specific region . They pursue the purpose of benefiting their members through a common policy of economic exchange, both among themselves and with the rest of the countries.

Economic blocs can be born from the signing of a Free Trade Agreement (FTA), or other types of diplomatic instruments, in which, in addition, the accession of a new associated country is given according to specific terms, on a voluntary basis. and usually after the approval of the countries that are already members.

In the same way, all the countries of an economic bloc tend to agree on positions regarding trade and often other socio-political foundations, such as the defense of democracy . Consequently, they establish a framework of minimum standards common to all , as in international treaties of another nature.

It can serve you: International organization

Objectives of the economic blocks

The economic blocs can have numerous and diverse objectives , depending on the spirit that motivates their integration and the degree of affinity that exists between their members.

Usually, however, the economy is the determining factor. Its members agree on common tariff, trade and exchange policies, which usually consist of the lifting of tariff barriers and free trade between member countries.

Ultimately, these measures aim at mutual development , instead maintaining a set of common tariffs for all transactions that do not come from member countries of the bloc.

At the same time, these multilateral international organizations may have as their purpose the aid to the less favored member countries, the development of common social policies (such as regional integration) and even the defense of democracy among their members. Everything will depend on the founding treaties of the block.

Types of economic blocks

Usually, economic blocs are classified according to the degree of economic integration reached by their member countries. Thus, one can speak of:

• Economic Complementation Agreements. They hardly imply reciprocal tariff preferences for some of the products manufactured in the countries that subscribe to them.
• Customs Agreements. A single and same customs policy is implemented between the subscribing countries.
• Free Trade Areas . Founded by Free Trade Agreements (FTA), they usually imply the full lifting of tariffs between countries, except for certain protected products, considered "sensitive".
• Economic Community. They imply the total liberation of trade in factors of production .
• Economic Union. It implies total and full economic integration, not only in trade and tariff matters, but also in monetary and fiscal matters.

Characteristics of the economic blocks

The economic blocs embody that saying that "in unity there is strength." Nations are integrated to some extent , to give a common face, "en bloc", to international trade, and thus benefit reciprocally.

This common good may not only be economic, as we said before, but it is sustained based on internal regulations and letters of principles that govern the block. In any case, among the countries that compose it, there may be economic inequalities, or political discrepancies. It is a business alliance, not the founding of a new country altogether.

Advantages of economic blocks

Economic blocs represent great advantages for their members, such as:

• The possibility of a joint trade negotiation with other countries enhances it, on more equal terms than if it were negotiated separately.
• The application of integrative plans to the tariff and commercial policy of the countries of the bloc, allowing the free transit of merchandise between their borders and therefore promoting a common consumption and spirit.
• Mutual defense in matters not strictly economic , given that the collapse of a partner country on which many businesses depend is never a good idea for investors.
• The possibility of signing agreements in other non-commercial matters .

Disadvantages of economic blocks

At the same time they have the following disadvantages:

• Obligation to sign the economic decisions of the group , even if they go against their own interests.
• Restrictions when managing one's own foreign trade for each country.
• Loss of autonomy in non-economic matters compared to the rest of the block.
• Lack of protection against inequalities that exist within the bloc's own countries.

Examples of economic blocks

The main economic blocks of today are the following:

• The European Union. Composed of the nations of Finland, Sweden, Austria, Greece, Luxembourg, Portugal, Spain, Italy, Denmark, Belgium, Holland, Ireland, France and Germany. The United Kingdom was a party until the approval of the so-called “Brexit” in 2016.
• The Mercosur. Made up of the South American countries of Argentina, Brazil, Paraguay, Uruguay and Venezuela.
• NAFTA. Composed of the North American countries of Mexico, the United States and Canada.
• The Andean Pact. That make up the nations of Peru, Ecuador, Colombia and Bolivia.
• The Southern African Development Community (SADC). Composed of Angola, Botswana, the Democratic Republic of Congo, Lesotho, Malawi, Madagascar, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe.
• The Central American Common Market (MCCA). That make up Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.

Globalization and economic blocks

The creation of economic blocs is a response at the beginning of the 21st century to economic globalization . The integration of distant markets into a large network of investments , businesses and transactions is not always accompanied by justice . For this reason, it affects differently between countries with a solid and industrialized economy, and weak countries with dependent economies.

For this reason, membership in regional economic blocs is a possible protection against the globalized economy . This, paradoxically, establishes the next step in the composition of a globalized world economy: trade between regions, which in the future could become integrated and thus compose a decentralized global economy.